RBI holds repo rate at 5.25%, sticks to neutral stance as growth outlook stays firm; key takeaways

RBI MPC Meeting Updates: The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday kept the policy repo rate unchanged at 5.25 per cent and retained its “neutral” stance, signalling a continued pause as growth remains steady and inflation stays benign.

RBI Governor Sanjay Malhotra said future MPC decisions will be guided by evolving macroeconomic conditions, reiterating the central bank’s data-dependent approach amid global uncertainties.

GDP growth estimates revised: Private consumption, rural demand provide support

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On the demand side, RBI Governor Sanjay Malhotra said that the momentum in private consumption is expected to be sustained, while rural demand remains steady. Growth in real Gross Value Added (GVA) is largely driven by the services sector, indicating a stable domestic demand. The RBI has revised GDP growth estimates for Q1 and Q2 of FY27 upward to 6.9 per cent and 7 per cent, from the earlier projections of 6.9% and 6.8%, reflecting stronger-than-expected economic activity.

Inflation outlook remains benign

On the inflation front, the outlook is nothing to worry about according to RBI. Headline CPI inflation stayed low in November and December 2025, with the central bank now forecasting FY26 inflation at 2.1 per cent.

Trade and investment environment supportive

Malhotra said India’s trade agreements with the European Union and the United States are expected to support exports and GDP growth over the medium term. He added that India continues to be a favourable destination for greenfield investments and foreign direct investment, supported by strong macroeconomic fundamentals and policy clarity.

Liquidity and financial stability

The RBI will remain proactive in liquidity management, ensuring sufficient funds in the banking system. System liquidity stood at a surplus of around Rs 70,000 crore, and the country is confident of meeting external financial requirements comfortably. Financial stability remains robust, with large industries recording higher credit growth.

Consumer protection and regulatory initiatives: RBI allows banks to lend to REITs

The central bank will introduce a compensation measure of up to Rs 25,000 for losses incurred in small-value fraudulent transactions. In addition, RBI will release a discussion paper on the safety of digital payments to protect consumers, including senior citizens. The central bank also proposed regulatory norms for derivatives linked to corporate bond indices and will allow banks to lend to REITs.

New schemes and corporate support

The RBI plans to launch a new initiative called SAKSHAM – Sarakari Bank Kshmata Nirman – to strengthen banking capacity. It has also removed the Rs 2.5 trillion limit under voluntary retention, providing banks more flexibility in managing resources.

Bond yields react

Following the policy announcement, the benchmark 10-year government bond yield rose 4 basis points to around 6.69 per cent, after the RBI revised inflation projections higher for the first half of FY26, citing rising precious metal prices.

Malhotra also highlighted that improving corporate sector performance should support manufacturing activity, underpinning economic growth in the coming quarters.